For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Saia (NASDAQ:SAIA). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
How Quickly Is Saia Increasing Earnings Per Share?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Saia's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 43%. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. EBIT margins for Saia remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 13% to US$2.8b. That's encouraging news for the company!
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
NasdaqGS:SAIA Earnings and Revenue History May 20th 2023
Owing to the size of Saia, we wouldn't expect insiders to hold a significant proportion of the company. But we are reassured by the fact they have invested in the company. Indeed, they hold US$19m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 0.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you'd argue that they are indeed. The median total compensation for CEOs of companies similar in size to Saia, with market caps between US$4.0b and US$12b, is around US$8.3m.
Saia's CEO took home a total compensation package worth US$4.5m in the year leading up to December 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.
Should You Add Saia To Your Watchlist?
Saia's earnings per share have been soaring, with growth rates sky high. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The strong EPS improvement suggests the businesses is humming along. Saia is certainly doing some things right and is well worth investigating. However, before you get too excited we've discovered 2 warning signs for Saia (1 can't be ignored!) that you should be aware of.
There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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